Thursday, October 23, 2014

Philippines holds rate, sees lower inflation 2014-2016

The central bank of the Philippines maintained its key policy rates at 4.0 percent and said inflation is expected to be lower than expected in the 2014-2016 period due to easing pressures on commodity prices while domestic demand remains resilient.Bangko Sentral ng Pilipinas (BSP), which raised its rate last month to rein in inflationary expectations, also said the risks to inflation were broadly balanced and it was maintaining its policy stance to allow the tighter policy since March to work its way through the economy. Last month BSP also said the favorable prospects for domestic demand allowed its scope for a further adjustment in rates but it dropped this guidance today. Instead the central bank said it would remain vigilant against any developments that could affect the outlook for inflation and financial stability and was ready to take appropriate action to safeguard its objectives for price and financial stability. The headline inflation rate in the Philippines eased to 4.4 percent in September from 4.9 percent in August and its Gross Domestic Product in the second quarter expanded by 1.9 percent from the first quarter for annual growth of 6.4 percent, up from 5.6 percent in the previous quarter. BSP issued the following statement:

"At its meeting today, the Monetary Board decided to maintain the BSP's key policy rates at 4.00 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6.00 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs and special deposit accounts (SDA) were also kept steady. The reserve requirement ratios were left unchanged as well.

The Monetary Board’s decision is based on its assessment of a more manageable inflation environment, based on latest baseline projections indicating within-target inflation for the policy horizon. Latest forecasts show a lower inflation path for 2014-2016, reflecting easing pressures on commodity prices. Inflation expectations have also remained broadly stable and aligned to the inflation target. At the same time, domestic demand conditions continue to be resilient, supported by adequate domestic liquidity and robust bank lending growth.

The Monetary Board noted that the risks to the inflation outlook are broadly balanced, with potential price pressures emanating from pending petitions for adjustments in utility rates and possible power shortages. Meanwhile, global economic prospects are likely to stay uneven, thus mitigating upward pressures from commodity prices going forward.

Given these considerations, the Monetary Board deemed it prudent for the time being to allow previous monetary responses to continue to work their way through the economy. The Monetary Board emphasized that the BSP will remain vigilant against developments that could affect the outlook for inflation and financial stability and is prepared to take appropriate policy action as necessary to safeguard its price and financial stability objectives."